Hovering higher

Finmeccanica's plans to fly high in America get off the ground

WHEN Pierfrancesco Guarguaglini took over as boss of Finmeccanica two years ago, Italy's biggest defence group—in which the Italian state has a 32% stake—was a hopeless jumble of assets. So he set about beefing up the firm's military side while cutting the number of non-core businesses and joint-ventures. On May 26th, another big step in this direction was announced, with Finmeccanica taking full control of AgustaWestland, a helicopter joint-venture which it had set up in 2001 with GKN, a British defence group. Mr Guarguaglini is now determined to become the world's top helicopter-maker.

The speed with which the deal was completed took rivals by surprise. EADS, a Franco-German aerospace and defence group that owns Eurocopter, its big European rival, reportedly tried to scupper the deal at the last minute. GKN is keen to get out of helicopters in order to concentrate on automotive and aerospace equipment. Finmeccanica can easily finance the euro1.5 billion ($1.8 billion) purchase of GKN's 50% stake by selling about half of its 17% stake in STMicroelectronics, a Geneva-based microchip-maker.

The price is high, but helicopters can be a relatively lucrative niche in the tricky defence market. Last year, AgustaWestland's 10.6% profit margin was higher than the average of Finmeccanica businesses. The firm already has its order book full for the next two and a half years. AgustaWestland and Eurocopter were neck and neck in the helicopter business last year with sales of euro2.6 billion each, ahead even of America's Sikorsky (a subsidiary of United Technologies), Textron's Bell and Boeing, the three other big players in the market. Analysts predict that total civilian and military helicopter sales, $12 billion last year, will double by the end of the decade.

To turn AgustaWestland into the market leader, Mr Guarguaglini must sell more helicopters in America. “Any firm with global ambitions has to be strong in America,” says Richard Holloway, a consultant to Finmeccanica. But as most countries like to give defence orders to home-grown firms, the Italian firm has to bolster its American credentials. It has formed a consortium with Bell and Lockheed, another American defence contractor, to pitch for the renewal of the American president's helicopter fleet. Finmeccanica is offering an American version of its flagship helicopter, the EH101. A team led by Sikorsky is bidding too. The winner, perhaps announced as soon as November, would be well placed to pitch for the 200 other helicopters which America intends to buy for its military over the next few years.

If it gets the contract for the 23 helicopters that will form the presidential and VIP fleet, AgustaWestland plans to extend a site in Amarillo, Texas, George Bush's home state. The firm also points out that it already has a joint-venture with Bell that sources 65% of its materials in America. Mr Guarguaglini hopes that good relations between the Italian and American governments will help clinch the deal. But even so, he is still a long way from landing his helicopters on the White House lawn.